Is my tax code correct?

mike5678

I had an issue recently with HMRC giving me tax relief on pension payments but only calculated it on my net payments rather than gross which has been sorted out now, but it made me think maybe they messed it up for this year when they changed my tax code to allow me to receive the relief that way this year. Could someone check my numbers for me?

Salary: approx £55k
Tax code: 1180L

This is based on me making a £200 per month payment to a SIPP from my take home wage AFTER it has been taxed.

Linton

I hope this is correct!!

You paid £2400 net into a pension which uses £2400/0.6 = £4000 of your gross pay, £1600 of which is taken as tax. This tax needs to be refunded.

The pension company will claim £2400/4=£600 from HMRC giving £3K in your pension. The remaining £1K needs to be returned to you.

Assuming no deductions personal tax allowance is £10600 so 1180L raises that to £11800, an increase of £1200. This will reduce your tax by £1200*0.4=£480

Do you have any deductions from your tax allowance - eg benefits from work, interest income only taxed at 20% etc?

mike5678

No other deductions

jem16

Linton wrote: »

I hope this is correct!!

You paid £2400 net into a pension which uses £2400/0.6 = £4000 of your gross pay, £1600 of which is taken as tax. This tax needs to be refunded.

The correct calculation should be £2400/0.8 = £3000 gross as this is what goes into the pension.

The pension company will claim £2400/4=£600 from HMRC giving £3K in your pension. The remaining £1K needs to be returned to you.

As you say the pension provider will claim £600 from HMRC and pay it into the pension giving £3000. The OP is then entitled to another £600 from HMRC for higher rate tax relief meaning that his pension has cost him £1800.

Assuming no deductions personal tax allowance is £10600 so 1180L raises that to £11800, an increase of £1200. This will reduce your tax by £1200*0.4=£480

Yes as HMRC is taking £2400 to be the gross contribution. The OP should have told HMRC that the contribution was £3000.

The OP's tax code needs to be increased by £1500 so it should be 1210L.

jem16

mike5678 wrote: »

but it made me think maybe they messed it up for this year when they changed my tax code to allow me to receive the relief that way this year.

HMRC didn't mess it up. You messed it up by telling them the net contribution when you should always tell them the gross contribution as that's what tax relief is based on.

mike5678

jem16 wrote: »

HMRC didn't mess it up. You messed it up by telling them the net contribution when you should always tell them the gross contribution as that's what tax relief is based on.

Granted I didnt use the words 'net pay' when I spoke to them on the phone, but I did use the phrase, '£200 per month paid from my take home pay after tax'.

jem16

mike5678 wrote: »

Granted I didnt use the words 'net pay' when I spoke to them on the phone, but I did use the phrase, '£200 per month paid from my take home pay after tax'.

Ok fair enough. probably clear enough then.

However for the avoidance of any doubt with HMRC I would always quote gross figures as that is what would be entered into a tax return. Strangely enough it's the opposite of savings interest which used to be entered as gross but now it's the net that's asked for.

Time for another phone call I think.

xylophone

You need to be careful with the expression "net pay" when discussing pensions....

https://www.gov.uk/workplace-pensions/managing-your-pension